The growing sale of bonds in dollars reflects the BCRA’s strategy in the face of exchange rate pressure and the challenge of reserves.
In recent weeks, there has been strong intervention by the Central Bank of the Argentine Republic (BCRA) in the financial market with the aim of containing the rise of financial dollars such as the MEP and cash with settlement (CCL), and thus avoid an increase in exchange gaps.
Various reports from specialized consulting firms and brokers agree that there has been a significant increase in the traded volumes of bonds such as the AL30 and the GD30, which suggests active intervention by the BCRA. These movements are also reflected in the data from the Central Bank’s payrolls and in the variations in international reserves. Last week, reserves fell by USD 524 million, despite the fact that the entity reported net purchases of USD 639 million and without recording relevant debt payments in the period.
Within the framework of the launch of the second stage of the stabilization program, the BCRA had set a limit for the broad monetary base at $47.7 trillion. According to this strategy, any monetary expansion derived from the purchase of dollars in the official market (the only issuance channel that remains) would be sterilized through operations in the financial market. However, data published by the BCRA show that this limit has not been reached in the last month, placing the monetary base at $46.5 trillion according to the latest information available.
On January 20, the vice president of the BCRA, Vladimir Werning, made a presentation in London titled “Argentina’s Economic Program (Stage 3): Internal Stability (lower monetary stocks and fiscal balance) provides a solid foundation to build External Flexibility (higher foreign exchange stocks and balance of payments balance)” during the 11th Latin American Conference organized by BBVA. In his presentation, a graph revealed that the sale of bonds in dollars to intervene in the financial market has increased considerably: in December, sales of USD 325 million were recorded, while in the first 16 days of January these reached USD 619 million, converting to January in the month with the greatest intervention since the beginning of this stage.
The increase in demand for dollars in the financial market during the holiday period was foreseeable due to the obvious exchange rate delay. Factors such as taxes applied to the official dollar and the card dollar have shifted part of this demand to financial dollars. In addition, applications used to make payments abroad turn to the financial market to acquire foreign currency, intensifying pressure on these exchange rates. Faced with this situation, the BCRA is forced to intervene to maintain exchange stability, which leads to a loss of reserves or, at least, a lower accumulation of them.
In parallel, The Government is in negotiations with the International Monetary Fund (IMF) for a new agreement. One of the main controversies is the exchange rate scheme, which is characterized by current restrictions and an exchange rate arbitrarily determined by the BCRA. Although the government seeks to demonstrate that the exchange gaps remain limited as a way to justify its strategy, this balance would be unsustainable if the gaps increased to 30% or 50% or more.
However, A sustainable solution does not involve a new abrupt devaluation, but rather the implementation of a free exchange rate scheme, with a dirty float. This would allow the BCRA to intervene to smooth out fluctuations, while the value of the dollar would more faithfully reflect supply and demand conditions. For now, the government seems to choose to maintain an exchange rate delay scheme, focused on obtaining external financing to sustain this strategy.
The BCRA’s intervention in financial markets raises questions about the sustainability of this policy and its effects in the medium and long term. Although the strategy seeks to avoid significant imbalances in exchange gaps, it also highlights the limitations of a scheme that requires constant use of reserves and generates uncertainty about future economic stability.
Source: Ambito
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